Magazine

David Drumm's Bank Blues in Boston

The Anglo Irish Bank ex-CEO files for bankruptcy, as the bank is under investigation for fraud

When David K. Drumm filed for bankruptcy in Massachusetts in mid-October, he listed his home as 73 Old Colony Rd. in Wellesley, Mass. That's a half-hour drive west of Boston and almost 3,000 miles from his native Dublin, where Irish fraud police are investigating alleged irregularities at Anglo Irish Bank, which he used to run.

There was no answer at the Wellesley address on a Saturday evening in October. Also empty was the waterfront home in Chatham on Cape Cod in Massachusetts, which he bought for $4.6 million in early 2008, months before the Irish government seized the lender he had run since 2005. The locals have "Drumm sightings," says Peggy Flynn, who lives nearby in Chatham. "One day I was outside, and somebody said, 'Oh, there goes Mr. Drumm on a bike.' "

The government bailout of Anglo Irish—once Ireland's third-largest lender by assets—could cost taxpayers more than €34 billion ($48 billion), according to the Central Bank of Ireland. Irish regulators have also mounted a criminal investigation of the bank. Drumm hasn't been charged with any offense. Stewart F. Grossman, his bankruptcy attorney, did not return phone calls or e-mails seeking comment.

Drumm was dispatched to Boston in the late 1990s to establish a U.S. base for Anglo Irish, which had become a force in Irish property lending. In 2003, having created a U.S. loan book that topped €1 billion, Drumm returned to take over Irish lending. He became chief executive officer in 2005, at age 38. CEO Sean FitzPatrick became chairman.

Drumm trebled lending in four years to €73.2 billion at the end of September 2008, €9.3 billion of which came from the bank's U.S. business. Anglo Irish backed at least $2.4 billion of Manhattan real estate deals from 2005 through 2009, including the purchase of a Ralph Lauren store and the Beekman Tower and Eastgate Tower hotels. The bank has labeled almost €1.5 billion of U.S. loans as impaired since the end of March 2009, and an additional €1 billion is "past due but not impaired."

During the global credit crisis, the Irish government was forced to guarantee the bank's deposits. In late 2008 the Irish corporate watchdog, the Office of the Director of Corporate Enforcement, became aware of "certain irregularities" at the bank, says ODCE spokesman Kevin Prendergast. On Dec. 18, 2008, FitzPatrick issued a statement saying he had borrowed €87 million from Anglo Irish and had not disclosed the amount of the loan. He and Drumm resigned. The bank was nationalized weeks later, and five directors quit, citing in a statement their "disappointment over the management of loans to the former chairman." The ODCE is investigating "matters associated with the loans made by Anglo to its directors over a number of years," according to its 2009 report.

That's not all. Anglo Irish disclosed in February that it received €7.3 billion in deposits from another Irish lender just before its fiscal year ended on Sept. 30, 2008. The deposits were withdrawn days later in what amounted to "circular transactions," according to a statement from the Irish financial regulation office.

The ODCE is investigating "the declared level of customer deposits at Anglo in 2008," it said in the 2009 report. In February 2009, Irish police raided the bank for documents. Prendergast says the ODCE continues to work closely with Irish fraud police, who are carrying out an overlapping investigation. He would not comment on what role, if any, Drumm is alleged to have played.

Anglo Irish disclosed in its 2008 annual report that it had lent €451 million to 10 "long-standing clients" to buy a 10 percent stake in the bank. Most of the loans were secured by the shares the clients bought, according to the report. The shares are now worthless, and the ODCE has said it is investigating.

In a interview in October with the Sunday Independent, an Irish newspaper, Drumm said that he acted at all times "with the full cooperation and backing" of Irish financial regulators and the central bank and on the strength of legal advice. He will cooperate with the investigation, he said.

Anglo Irish has sued Drumm in a Dublin court, accusing him of not paying back about €8 million in loans. When Drumm and the bank failed to settle the dispute in October, Drumm filed for Chapter 7 bankruptcy in Boston, declaring debts of $14.2 million and assets of $13.9 million. His Wellesley property, held through a trust, is valued at $1.85 million, while he valued his Chatham house at $2.95 million. In Drumm's backyard in Chatham, steps lead down to a private beach facing the Oyster River, where his neighbors sail pleasure boats. Peggy Flynn had hoped that Drumm would become part of the community. "He said he was going to have us all down at Christmastime, and I think he intended to do that," she says. "Then everything blew up."

The bottom line: The Irish government continues to investigate activities at Anglo Irish Bank during the time Drumm was CEO.